On the 5th of June 2012 RBI has passed a circular informing all banks that they will no longer be allowed to charge foreclosure charges on home loans on floating interest rate basis.
RBI has also noted that
Prior to this the banks were free to set their own foreclosure fees and only a few banks chose not to levy any and in some banks the foreclosure fees was linked to source of their income for example HDFC, LIC Housing Finance did not charge any fees if the loan was prepaid out of the own sources of the borrower.
This was causing causing a considerable amount of confusion and grief to the loan borrowers as many of them became aware of the Foreclosure fees only when they tried to switch over to a cheaper loan plan or tried to close their loans.
View Circular in RBI.org.in
RBI has also noted that
The removal of foreclosure charges/prepayment penalty on home loans will lead to reduction in the discrimination between existing and new borrowers and competition among banks will result in finer pricing of the floating rate home loans.
Prior to this the banks were free to set their own foreclosure fees and only a few banks chose not to levy any and in some banks the foreclosure fees was linked to source of their income for example HDFC, LIC Housing Finance did not charge any fees if the loan was prepaid out of the own sources of the borrower.
This was causing causing a considerable amount of confusion and grief to the loan borrowers as many of them became aware of the Foreclosure fees only when they tried to switch over to a cheaper loan plan or tried to close their loans.
View Circular in RBI.org.in
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